Growth and specialty boost small lenders’ earnings

The surprise that had been cooking for some time first came to light last year, when banks’ third quarter results were revealed by the central bank. It turned out that small and medium-sized bank were decided not to let the biggest lenders get the lion’s share of the local market and were trying to have a run at it as well. Each with its own strategy.
Of the four most dynamic lenders last year, two were two percent market share banks Credit Europe Bank (CEB) and Piraeus Bank. But how exactly did these small banks manage to grow fast enough to attract the market’s attention and also jump up a few positions in bank rankings?
First of all, their coming off as two of last year’s revelations had a lot to do with the fact that both opened hundreds of new locations in 2007.
Their winning strategy was to firstly, expand as much as their budgets allowed, and secondly, to find that special niche, that segment of the market where they could make a difference. CEB found it on the credit card sector, while Piraeus Bank identified its focus in the loans for small and medium enterprises.
Starting off with CEB, the bank is on a race to acquire a two percent market share this year, which prompted it to increase the number of branches to more than 100 and boost up its clientele to more than 400,000 individual and corporate clients last year. The lender’s small size and still limited branch network compared to the big players in the sector have determined it to develop its own approach to retail banking. CEB is thus focusing mostly on the credit card market, where it has a 20 percent share, surpassed only by Raiffeisen Bank.
This year, CEB wants to slow down the pace of organic growth and allot most of its resources to other ways of growing, like the setting up of mortgage corners within the bank’s branches. The bank wants to do more than just open up units and will set-up a call-center, new ATMs, as well as internet banking networks.
Piraeus Bank, on the other hand, will go on with the speedy in-field expansion this year as it did in 2007. At the beginning of the year the bank operated a 100-unit network, after having almost doubled its territorial presence last year. The Greeks’ full-throttle expansions propelled them five positions in yearend bank rankings. Their current plan is to have as many as 250 units by 2010 and possibly near 200 branches this year alone.
But physical growth is not singular on the bank’s to-do list. Piraeus found room for expansion on the SME loan segment, where the Piraeus Business Express product competes against similar credits from established lenders such as BCR or BRD. The loan is dedicated to companies with turnovers ranging between EUR 30,000 and EUR 5 million. Piraeus said it sells about 300 such loans every month, adding up to a total EUR five million.
All loans considered, Piraeus reported credits worth EUR 1.77 billion in the first three quarters of last year, up 175 percent against the beginning of the year. Gross profits also grew three times in the same period compared to the entire year 2006, to EUR 14.6 million. Organic expansion plus loans to SMEs spelled out big gains for a bank that otherwise might have never broke out of the little banking league.
One of the top climbers, however, last year and this one, is Volksbank, a lender which was not even part of top ten charts at the beginning of 2007. Its fast-paced growth and focus on individual clients have taken it first to the tenth position and then to the eighth. And the Austrians are still climbing, with the “secret objective” of getting to the fifth place in banking rankings this year. The bank also wants to up its market share from the current 5 percent to about 5.6 percent by the end of the year, said head Gerald Schreiner. Assets are expected to grow by EUR 1.7 billion, or 49 percent, up to EUR 5.2 billion.
The number of branches will go from 225 at the end of 2007, to 340 this year and an estimated 600 outlets by 2011, including the bank’s own branches and its franchises.
In the capital city, the bank intends to grow to a size which allows it to be within one kilometer of every potential client, said the Volksbank head.
The organic growth will be accompanied by a rise in cash-ins. Volksbank’s operational profit is estimated to grow to EUR 36 million in 2008 against EUR 24.5 million at the end of last year.
As opposed to CEB and Piraeus Bank, Volksbank’s strategy was to grow, but focus on increasing its housing loan portfolio at the same time.
The bank had a market share close to 11 percent on this business segment last year, said Schreiner, adding that housing loans represented about 75 percent of the bank’s entire credit portfolio.

By Ana-Maria David